August 5, 2021

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Expert: Finding the Right ‘Frame’ is Key to Ensure Good Reverse Mortgage Policy from Gov’t

The newly appointed leadership of the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) must address a number of structural issues and key management positions prior to any home conversion mortgage-related policy The program ( HECM) can be meaningfully pursued, especially considering the stated political priorities of the new administration and the issues facing American residential real estate in the wake of the COVID-19 coronavirus pandemic.

These were some of the allegations made by Jim Parrott, a non-resident of the Urban Institute in Washington, DC and owner of Parrott Ryan Advisors of Chapel Hill, NC, in a conversation held during the Virtual Reverse Mortgage Lenders Association (NRMLA) Virtual Policy Conference in April in a discussion moderated by Chris Mayer, CEO of Longbridge Financial.

Human Resources and Forbearance

When asked what the FHA and HUD need to do to literally become familiar with the current housing situation, Parrott describes a scenario where agencies must first get their own homes in order before moving on to other major housing issues in the UK States.

“I think there are two things that will stop you before you think about FHA and the first is the staff,” says Parrott. “You are very thin. HUD, and really every administration in general, have bandwidth issues, and at least FHA and HUD are all about finding the right Senior Housing Finance team so they are honestly competent to get big. “

Legislation already spearheaded and incorporated into law by the Biden administration, including the American Rescue Plan Act, cites the government’s desire to “big up” spending proposals and packages to help the economy in the wake of the government to strengthen COVID-19 crisis, Parrott states. This means that any other major housing idea will have to fill leadership positions such as a new FHA commissioner, the president of the Government National Mortgage Association (GNMA or “Ginnie Mae”), and other senior advisors to the HUD secretary.

“The HUD secretary is not real estate finance [position]”Says Parrott.” So there are at least half a dozen jobs that need to be filled in order for them to come in [making key housing decisions]They feel confident in themselves when they come to a decision that they have thought it all through. “

Another potential problem that needs to be addressed quickly is the fact that many homeowners are lenient, which for many of them is likely to come to an end at the same time. Assuming some of these other problems are resolved by mid-summer and the oncoming “storm” isn’t as severe as it might otherwise be, the equation changes a bit, he says.

“Are you lowering the MIP or the premiums? Are you offering a more targeted aggressive subsidy for people who really want to somehow help out when they own them? Do you offer even more relief in the backend for those who have problems? What do you do with the excess space you have? “Parrott asks rhetorically. “Because there is no reason for them to accept a capital buffer of 6-7%. You don’t have to go back to exactly zero, but maybe there is a sweet spot somewhere. “

Reverse Mortgages and the HECM Program

When it comes to specific recommendations about the HECM program, Parrott was quick to point out that the audience at a reverse mortgage industry event is understandably compelled to fully appreciate the potential benefits that a HECM can offer a member of the senior population know and understand. However, it can be difficult to bring the same case to a legislature or a reverse mortgage skeptic.

Trying to redefine people’s perceptions in federal government at the start of a new administration might be a little easier than later, and it comes down to the design, he says.

“When the framework around policy makers is, ‘Hey, this is a resource or tool for seniors to maintain their standard of living in an environment where their sources of income or wealth may decline. [and can allow] they should live life as they are used to when their resources are increasingly limited, ”Parrott describes an optimal framework. “If that is the framework, policymakers will do everything possible to sustain it and ensure that it is durable, sustainable and functional. If you sell people in this framework [and convince them] This is what to think about when you think of HECM, then you are 80% on the way there. The next 20% is largely a matter of blocking and attacking, which we can all do. “

The problem with a previous “frame”

However, if the framework instead revolves around the previous instability of HECM within the Mutual Mortgage Insurance Fund (MMIF) – which, according to Parrott, could have been the case with key decision-makers in the previous administration – and that vulnerable populations are more likely to have HECM during this Time to Seek During times of financial volatility in your own life, work becomes much more difficult, he says.

“If that’s only half the scope, there is a real risk that you will be regulated to death where they put risk reducers in place to protect against the risk, but in such a way that you can’t thread the needle between the guards against the risk the risk and a viable business model, ”he says. “And ultimately it strangles the program to death.”

Because of this, it’s important for those working with policy makers to step down the proverbial “ground floor” with new leadership at HUD and FHA, he says.

“I think part of the challenge here is that [the reverse mortgage industry] must roll up [its] Sleeves and offer [policymakers] with useful advice on how to do [HECM] economically viable over time, ”he says. “I think this is where you need to focus so that you can convince the risk managers at FHA that there is a model here that is resilient throughout the cycle. If house prices go down and interest rates go up, the world will not end and it will not blow up the MMI funds. “

There is also a need to either insure the current state of HECM or to change the current program to move policy makers to a safer place regarding the program, Parrott explains.